USD/JPY prediction as Fed and BOJ divergence continues

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Written on Mar 18, 2022

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The USD/JPY is trading at the highest point since 2016.
The BOJ decided to leave interest rates unchanged at - 0.10%.
It also hinted that it could ease in the coming months because of Covid-19.

The USD/JPY price tilted upwards on Friday morning after the latest interest rate decision by the Bank of Japan (BOJ). The pair rose to a high of 118.75, which is close to its highest level since February 2016.

Bank of Japan decision

The BOJ was the final major central bank to deliver its monetary policy decision this week.

As was widely expected, the bank decided to leave interest rates unchanged at – 0.10% where they have been for years.

The BOJ also maintained its yield curve control program. This means that it will continue buying the necessary amount of Japanese government bonds so that the 10-year yield remains at around 0%.

Most importantly, the BOJ said that it will continue with its quantitative and qualitative monetary easing policies as long as it is necessary. It will also continue to support companies through several approaches like purchasing bonds.

The BOJ decision means that it is one of the leading central banks that has been a bit dovish lately. For example, on Wednesday, the Federal Reserve decided to hike interest rates for the first time since 2018. It warned that more rate hikes were on the way.

Meanwhile, in Europe, the Bank of England (BOE) concluded its meeting and hiked interest rates for the third straight month and warned that more were coming. Last week, the European Central Bank (ECB) left interest rates unchanged and slowed its asset purchases.

The USD/JPY rose because the BOJ also warned that it could take more easing measures depending on the current trends of Covid-19 in the country.

USD/JPY forecast

The weekly chart shows that the USD/JPY pair has been in a strong bullish trend in the past few months. It has risen by about 18% from its lowest level in 2020.

The current level is an important one since it was the highest point on January 2 2017. It is also being supported by the 25-week and 50-week moving averages.

Therefore, the path of least resistance for the USDJPY pair is in the upside. The next key level to watch will be at 120.